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More Money Lessons from “Downton Abbey”

We’re big fans of “Downton Abbey”, the television show that follows an aristocratic British family in the early decades of the 20th century.

Over the five seasons that the show has graced PBS’ “Masterpiece”, a number of money lessons have been showcased — mostly what NOT to do!

For example, don’t bet the family fortune on a railroad thousands of miles away (i.e., massive lack of diversification). A professional advisor working in concert with the Earl of Grantham probably would have prevented him from concentrating so much capital in a Canadian railway!

Downton’s money lessons include financial and estate-planning disasters, bad investments, messy trusts, and inadequate business succession plans.

Here are some key takeaways and tie-ins:

Spell out control and ownership when passing the baton of a family company
(the generational transfer of Downton Abbey from Robert to Matthew)
Use trusts to protect the family fortune
(to protect Robert Crawley’s from his own poor decisions)
Make a will before giving birth
(think of Matthew Crawley’s untimely demise)
Set up a medical directive
(the terrible struggle of how to handle Sybil in childbirth)

We can’t wait for more Dowton Abbey and money lessons as season 5 continues!

Best Illustration of Bull & Bear Markets

This is the best illustration we’ve ever seen of history’s bull and bear markets. Blue illustrates past bull markets’ durations and returns (total and annualized). Red illustrates the bear markets. This was published in May 2014 so the current bull market is actually pushing 69 months.

Some key takeaways:

There’s a lot more blue than red meaning stocks tend to spend more time going up in value than going down.
The current bull market might feel long but by historical standards, the length and strength of this bull is not exceptional

Source: BI

Investing Priorities

The general rule of thumb for investing priorities is:

Invest in your company 401(k) plan up to the match
Pay off short-term, non-tax-deductible debt (e.g., credit card, car loan)
Establish an emergency fund; 6-12 months of living expenses is a good guidepost
Put the maximum allowable amount in a Roth IRA (if eligible)
Put the maximum allowable amount in your company 401(k)
Invest the remainder in taxable accounts
Pay down tax-deductible debt (e.g., home mortgage)

Source: Vanguard

Morgan Stanley Advisor Leaks Data for 350,000 Clients

Morgan Stanley financial advisor Galen Marsh downloaded personal and sensitive account data for 350,000 clients of the firm. Essentially none of these clients were his own. A few weeks ago in December 2014, these data started showing up on Pastebin, a website popular with data thieves and other illegal operators. The anonymous data leaker offered to trade more data in exchange for a payoff in virtual currency. Morgan Stanley detected the breach, subsequently fired the 30-year-old advisor and the FBI has opened an investigation.

One startling aspect of this data breach is the seemingly weak information security at Morgan Stanley. One of the basic tenets of this space is “access control” — each employee’s access should be restricted to the data he or she needs to operate. In this case, Mr. Marsh should have had access to only the handful of clients that he supported, not 350,000!

Marsh admitted to downloading data for 350,000 clients but denies posting it online. Morgan Stanley is trying to understand how Marsh transferred the data offsite.

In response to this breach, Morgan Stanley reportedly tightened security to its client database, hired an outside call center to handle the surge of inbound calls from clients concerned about the breach, and is offering credit and identify theft services to impacted parties.

Source: WSJ

Stock Market’s Merry Performance Over Time

Above is Carter Braxton Worth’s seasonal interpretation of the stock market’s history. Stacking up the stock market’s annual performance going back nearly 200 years can look merry and bright.

Since 1825, the stock market has produced an annual gain 71% of the time, or 134 times, while losing ground just 55 times. A standard distribution chart, which happens to take the shape of a Christmas tree, shows how for most years, the market moves within a range of zero to up 10%.

Source: MarketWatch

Wages Winners and Losers Since 2004

Great decadal snapshot of wage trends published by the Wall Street Journal. “Stagnant wages have become a hot topic in politics and for good reason, if you compare annual average pay from 2004 and 2013, one-third of all U.S. counties have seen their pay decline, when the figures are adjusted for inflation. The biggest winners for wage increases are the counties running down the center of the country many of which have economies based on energy and agriculture.”

Visit this webpage for an interactive version of this map where you can examine the data for individual counties.

Source: WSJ

A to Z of Behavioral Bias

An A to Z list of common behavioral biases with brief descriptions, examples, causes, possible mitigations and suggested further reading courtesy the Psy-Fi Blog. Each of the links below takes you to the relevant post at Psy-Fi, so have fun and think about how they apply to your own investing habits:

A is for Anchoring

B is for Base Rate Neglect
C is for Confirmation Bias
D is for Disposition Effect
E is for Ego Depletion
F is for Framing
G is for Gambler’s Fallacy
H is for Hindsight Bias
I is for Illusion of Control
J is for January Effect
K is for Kruger-Dunning Effect
L is for Loss Aversion
M is for Mental Accounting
N is for Negativity Bias
O is for Overconfidence
P is for Priming
Q is for Quantification Fallacy
R is for Representative Heuristic
S is for Self-Enhancing Transmission Bias
T is for Texas Sharpshooter Effect
U is for Uncertainty
V is for Von Restorff Effect
W is for Winner’s Curse
X is for Xenophobia
Y is for Yawn Effect
Z is for Zero-Risk Bias

Source:

The A to Z of Behavioral Bias (Psy-Fi Blog)

Top 10 Mistakes Made with Beneficiary Designations

#1 — Not Naming a Beneficiary
By not naming a beneficiary you have most likely guaranteed that the asset will go through probate upon your death.

#2 — Not Designating Contingent Beneficiaries
If your primary beneficiary predeceases or dies at the same time as you, you’re subject to the same consequences as #1

#3 — Failing to Keep Beneficiary Designations Up-to-Date
If you get divorced, it’s essential you immediately review and update all beneficiary designations.

#4 — Naming Minors as Direct Beneficiaries
Trusts are often established to delay the time a survivor receives an asset until they are old enough to make good money decisions. However, if you designate a minor child as an account’s beneficiary and there’s also a testamentary trust, the designation trumps the trust and the child will receive the assets immediately.

#5 — Naming Special Needs Individuals as Direct Beneficiaries
Naming a “special needs” individual as the direct beneficiary could unintentionally disqualify that individual from receiving his or her valuable governmental benefits.

#6 — Naming Financially Irresponsible Beneficiaries
Often it’s better to create a lifetime “spendthrift trust” to hold the inheritance for the benefit of the individual for his or her lifetime while protecting the assets from creditors.

#7 — Naming Direct Beneficiaries on All Assets Other than Real Estate
Very often real estate will need to go through probate even if there’s a will in place. This process can take a year or longer during which the estate is responsible for paying for maintenance, taxes, etc. It’s generally advisable to allow your cash accounts and/or life insurance proceeds to go through probate so the estate will have sufficient funds to support the real estate during probate.

#8 — Naming Multiple Beneficiaries on a Transfer on Death Deed
Avoid doing because all beneficiaries must agree on the realtor, sale price, and maintenance costs until the property is sold. Getting that type of agreement is very difficult.

#9 — Naming a Child as Co-Owner of a Deposit or Investment Account
Aging parents will sometimes add a trusted adult child as the co-owner of his or her bank account. Avoid this because it can create complicated issues around gifting, creditor issues, and final expenses.

#10 — Naming One Child as the Sole Beneficiary of a Life Insurance Policy or Deposit Account
A parent with multiple adult children should avoid doing this because it can create a situation very similar to #9.

Source: AAII

Thanksgiving Dinner Up 37 Cents

This year’s turkey dinner will cost you an extra $0.37 compared to last year. The average cost of a classic Thanksgiving Dinner for 10 people is $49.41 according to the American Farm Bureau Federation’s survey. That’s a 37-cent or 0.8% price increase from last year.

The bird soaks up the lion’s share of the budget at 44% of the meal’s cost. The 16-pound turkey came in at $21.65 this year or $1.35 per pound. The biggest year-over-year change on a percentage basis were the miscellaneous ingredients whose cost increased 8.7%. The stuffing contributed the biggest percentage drop at -4.9%.

The average cost of a turkey dinner has hovered around $49 since 2011. The relative price stability of the turkey index mirrors the government’s Consumer Price Index for food eaten at home which increased 3% compared to last year.

Happy Thanksgiving!

Source: AFBF

Asset Allocation in Thirty Seconds

If you’ve only got 30 seconds to understand asset allocation, spend those precious seconds staring at the table below. The main takeaway: stocks beat Treasury bonds and T-Bills on average. For example, over a 1-year period, stocks outperform 61.3% of the time during the last 210 years. Over a longer 30-year period (typical for retirement portfolios) stocks came out on top 91.2% of the time.

This table is from Jeremy Seigel’s book, Stocks for the Long Run.

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